Accounting Information Systems: Definitions and Characteristics

1. Accounting Information Systems: Definitions and Characteristics

2. Purchasing agent uses various sources of information to determine when and how much to order • Requisitions are received from supervisors indicating when specific supplies are needed and how much of them • Weekly open sales order and finished goods reports are used to evaluate current and future production plans in conjunction with a review of raw materials on hand

3. Purchasing agent reviews the card file of stock on hand to ascertain use history and vendor lead times. • When large and unusual orders are received by the sales manager, the purchasing agent is notified to evaluate related raw materials requirements

4. Purchasing agent prepares three-part purchase order, review it with the office manager, and obtains signature before distributing it • Copy 1 goes to vendor • Copy 2 goes to warehouse • Copy 3 retained • Purchase order log controls numerically all orders issued and to assure they are subsequently received and reported on receiving reports

5. When material received • Receiving dock personnel count the material and prepare three-part pre-numbered receiving form • Copy 1 goes to purchasing agent • Copy 2 goes to cost accountant • Copy 3 retained and filed in numerical order • If material received is finished product • Copy 1 routed through sales manager, who makes copy to update finished goods inventory. • If order is complete, receiving personnel send copy of purchase order to purchasing agent, who denotes receipt of material on purchase order log

6. Cost accountant uses copy of receiving report to post quantities receive to raw material cards • Production schedule and control based on: • Review of weekly report of finished goods on hand and on order • Walk-through review of work in progress • Production supervisor verifies availability of necessary raw materials with warehouse supervisor

7. Raw materials issued from stock on request of production supervisor • Signatures obtained from production personnel on material transfer forms • Transfer forms used to update raw material inventory files • Actual unit cost obtained from card records • Transfer sheets extended and summarized for recording the monthly journal entry to credit raw materials and charge work in process

8. Production begins when materials received • Occasional quantity checks to verify piece counts • No formal production control over work-in-process • Time sheets • Piecework quantities produced and payment rates per 100 units • Amounts extended and summarized for entry into payroll • Total piecework dollars charged to work-in-process • Non-piecework wages charged to overhead

9. As work completed, quantities and descriptions are recorded onto prenumbered merchandise transfer sheets • Shipping department personnel are responsible for accuracy of sheets • Each item initialed as verification

10. With shipping department approval, transfer sheet forwarded to sales manager • Enters catalog numbers and quantities into computer to update finished goods-on-hand • Inventory summary report repaired at month-end • Quantities and extended standard costs for all transfers from work-in-process to finished goods

11. Hourly production workers • Paid on piece-rate basis • Each employee accounts for own units of production and hours worked on each job • Recorded on weekly time sheets • Requires approval of department supervisor

12. Clock cards and time sheets sent to payroll clerk • Verifies extensions, calculates makeup hours and pay, calculates day work hours and pay • Reviews clock cards to determine if time sheets missing • Time sheets sent to service bureau to prepare checks and payroll journal

13. Checks prepared by bank and sent to office manager who separates by department • Checks and journals given to controller for review • If error, check cancelled, new check typed for corrected amount, payroll records corrected in following period • Office manager distributes checks to employees

14. Relies on annual physical count of items to determine on-hand quantities • Not directly reconciled to perpetual inventory records

15. Review • Chapters 1, 4 and 12 • Introduction • Internal Control • Data file management

16. Discussion QuestionsNormalization • What is normalization and why is it important to normalize a database? • Distinguish between First, Second and Third normal forms. • What are the characteristics of a “primary key”?  • What does it mean when there is a “one to many” relationship? • What is a "foreign key"?

17. Discussion QuestionsIntro to AIS • Distinguish between data, information and knowledge. • Describe the major types of computer-based information systems. • What are the major components in a transaction processing cycle? • What is internal control, and why is it an important part of an information system?

18. Discussion QuestionsData Management • Distinguish the traditional file approach from the database approach.  What are the primary differences in terms of how they store data? • What are the advantages and disadvantages of the following types of database models: hierarchical, network,  relational • What alternative file-access methods are available to implement a database at the physical level? What factors should you consider when choosing among these alternative methods? • What is a DBMS and what are some of the key components of a DBMS?

19. Discussion QuestionsInternal Control • What are the common exposures within a computer-based information system?  How would you ascertain the likelihood that a given exposure will exist? • How do you determine whether the impact of an exposure will be material? • What is the COSO framework?  Discuss the extent to which each layer within the COSO framework is implemented within the Coffee Roasting Company. • Which of the General and Application Transaction Processing Controls should be applied to the AOPS of the Coffee Roasting Company? What are the common exposures within a computer-based information system?  How would you ascertain the likelihood that a given exposure will exist? • How do you determine whether the impact of an exposure will be material? • What is the COSO framework?  Discuss the extent to which each layer within the COSO framework is implemented within the Coffee Roasting Company. • Which of the General and Application Transaction Processing Controls should be applied to the AOPS of the Coffee Roasting Company?

20. Discussion Question 24, pg 25 • Good internal control? • Purchase requisitions made verbally by departments to purchasing agent • Clerk responsible for raw material inventory records does not have access to storeroom where materials are kept • Receiving operation related to shipments handled by clerks responsible for managing storeroom where material are kept • Purchase orders prepared by clerks responsible for managing storeroom where materials are kept

21. Discussion Question 24, pg 25 • Good internal control? • Employees who count goods received do not know how many were ordered • Periodic physical inventory conducted by clerks responsible for managing storeroom where materials are kept • Purchase orders compared to receiving reports before vendors are paid

22. Discussion Question 25, pg 25-6Applicable Control Objectives (to CRC?) • The following should be authorized in accordance with management’s criteria • Vendors • Prices and terms • Customers • Production plan • Access to payroll, personnel and disbursement records • Shipment of goods should result in billing

23. Discussion Question 25, pg 25-6Applicable Control Objectives (to CRC?) • The following should be accurately and promptly classified, summarized and reported • Amounts due to vendors • Cost of good manufactured • Billings to customers

24. Question 52, pg 144 • Identify controls that would detect: • Clerks steal percentage of cash sent as donation to non-profit • Employees mail personal letters at company expense • Clerk posts payment as 53 instead of 35 • Unintentional • Intentional (to friends account) • Bill customer for item never shipped • Duplicate payment of invoice • Customer not billed for item shipped

25. Exam • Normalization problems • “Definitions” – matching or fill-in-the-blank • Multiple choice